Chapter 12
Factory Overhead: Planned, Actual, and Applied; Variance Analysis
Discussion Questions
1) Supervisors’ salaries, indirect labor, overtime
premium, supplies, indirect materials, payroll tax,
factory insurance, and depreciation.
2) The most important reason for variation in factory
overhead is the presence of fixed and variable
expenses. Therefore, as production volume changes
from month to month, the costs will do likewise.
However, overhead also will change because of
improved or decreased efficiencies and changes in
prices paid for overhead items such as supplies and
repairs.
3) Predetermined rates are used when it becomes
obvious that any other method of charging overhead
results in inequitable costing and delays the reporting
of financial results. Charging actual overhead to jobs
and products can result in charging unreasonable
amounts of overhead to various periods and in
delayed reporting of cost data. The use of
predetermined rates also enhances control through
analysis of over- or under applied factory overhead.
4) Five bases used for applying factory overhead are
units produced, direct materials cost, direct labor
cost, direct labor hours and machine hours. Important
considerations in selecting a base are the relationship
(correlation) of the base used and the use of overhead
items in manufacturing operations, as well as the
clerical practicability of using a particular base.
5) Predetermined rates are used when it becomes
obvious that any other method of charging overhead
results in inequitable costing and delays the reporting
of financial results. Charging actual overhead to jobs
and products can result in charging unreasonable
amounts of overhead to various periods and in
delayed reporting of cost data. The use of
predetermined rates also enhances control through
analysis of over- or under applied factory overhead.
6) An objective in selecting the base for a
predetermined factory overhead rate is to ensure the
application of factory overhead in reasonable
proportion to a beneficial or causal relationship to
jobs, products, or work performed or to be
performed, i.e., for estimating purposes. Ordinarily,
the base selected should be closely related to
functions represented by the applied overhead cost. If
factory overhead costs are predominantly labor
oriented, such as supervision and indirect labor, the
proper base would probably be direct labor hours. If
factory overhead costs are predominantly related to
the cost incurred in the ownership and operation of
the machinery, the proper base would probably be
machine hours. Another objective in selecting the
base is to minimize clerical cost and effort relative to
the benefits attained. When two or more bases
provide approximately the same applied overhead
cost to specific units of production, the simplest base
should be used.
7) (a) Theoretical capacity is actually the maximum
production possible from a given plant with no
allowance made for cessation of operations for
holidays, weekends, materials shortages, or machine
breakdowns. (b) Practical capacity is theoretical
capacity less an allowance for interruptions such as
breakdowns, delays in receiving supplies, and worker
absences. Practical capacity is usually 75 to 85
percent of theoretical capacity. (c) Expected actual
capacity is practical capacity adjusted for the lack of
sufficient demand in a single operating period and
may be used in building operating budgets when
expected capacity differs substantially from normal
capacity. (d) Normal capacity is practical capacity
adjusted to give consideration to the lack of sufficient
demand over a period long enough to include cyclical
and seasonal fluctuations. This is usually the basis for
long-range planning, standards, and preferably for the
determination of overhead rates.
8) The under applied overhead will be higher If
maximum capacity is used and lower if normal is
used. If this cost is charged to the current period, then
maximum capacity will produce a lower, and normal
capacity a higher, operating profit.
9) (a) Idle capacity costs arise from idle employees
and idle facilities. Idle employees give rise to costs
such as base wages paid, employer’s share of payroll
taxes, and other fringe benefit costs. Idle facilities
cause capacity costs due to deterioration with time,
approaching obsolescence, costs for upkeep,
readiness, maintenance, repairs, shelter, and
protection of valuables such as insurance. (b) When
idle capacity is present, an attempt should be made to
segregate idle employees and idle facilities through
proper reclassification. The accumulation of the cost
attributable to these idle workers or facilities in
excess of a reasonable budgeted amount might be in
some kind of overhead account to be treated
separately as a “management by exception” factor.
Idle capacity costs should be accounted for separately
for these reasons: (1) to prevent distortion and
confusion in the analysis of production costs; (2) to
facilitate income determination; (3) to control
operations; and (4) to plan next year’s budget
adequately. (c) Excess capacity cost has been
identified with those capacity costs that result from
greater production capacity than the company could
ever hope to use, or from unbalanced equipment or
machinery within departments. In creating the
forecast budget, it is important to isolate the excess
capacity cost so that management can be made aware
of its responsibility regarding the excess investment
in labor and machines.
10) (a) Analyze and identify the overhead
transactions. (b) Journalize the transactions. (c) Enter
transactions in general and subsidiary ledgers.
11) Overhead applied to production is entered as a
credit in the factory overhead control account. Actual
overhead is debited to the same account. Therefore,
overhead has been over applied when the account has
a credit balance.
12) The spending and idle capacity variances are
usually computed each period by analyzing any over
or under applied overhead. The spending variance is
so titled because it is computed by comparing actual
overhead with estimated overhead. And idle capacity
variance is computed by comparing applied overhead
with estimated overhead.
13) Variance analysis report provides information
about estimated overhead, applied overhead and
actual overhead clearly to make future decisions.
Spending variance and idle capacity variance are
major parts of this report.
14) Overhead can be over applied because (a) actual
overhead was less than budgeted; (b) capacity
utilized was greater than that estimated in computing
overhead rates; (c) the overhead estimate was too
high (a mistake); (d) the production estimate was too
low (a mistake); (e) combinations of the above.
15) Over- or under applied factory overhead may be
prorated among work in process, finished goods, and
cost of goods sold, or it may be treated entirely as a
period cost. The first method would have a smaller
effect on cost of goods sold and therefore on the net
income for the period.
16) The existence of large under absorbed variances
does not necessarily mean that unit costs are
incorrect. An analysis of the under absorbed figures
will indicate (a) whether actual overhead is too high
or whether expenses have been incorrectly estimated;
and (b) what part of the under absorption is caused by
unused capacity. If actual overhead is considered to
be too high and there is idle capacity, unit costs
computed are more reasonable than they would be if
overhead rates were computed to absorb all of the
actual overhead.
 Exercises

E-1

Work-In-process A/C

Material 23,800 Finished goods 48,600

Direct labour 20,160 Bal c/d

F-O-H 15,840 (closing w-I-p) 11,200

59,800 59,800

Work-In-process closing balance 11,200

Less: Material in process 4560

Direct labour + F-O-H in process 6640

F-O-H Rate = F-O-H / Direct labour × 100

= 15,840 / 20,160 × 100

= 78.5741 %

Individual amount of labour in process:

6,640 = Direct labour + F-O-H

If F-O-H = Direct labour × 78.5741 / 100

Then, Let Direct labour = x

6640 = x + x × 78.5741 / 100

6640 = x + 78.5741x / 100

6640 = (100x + 78.5741x) / 100

X = 6640 × 100 / 178.5741

Direct labour = $ 3718.34

Individual amount of F-O-H in process:

F-O-H = 6640 _ 3718.34

F-O-H = $ 2921.65

E-2

(1) No of Direct labour hours:

= No of people × hrs per day × days per week × No of weeks.
= 150 × 8 × 5 × 47
= 282,000 hrs
(2) No of Direct labou hours:
= No of people × hrs per day × days per week × No of weeks
= 150 × 10 × 4 × 47
= 282,000 hrs

E-3

(1) F-O-H applied rate = Estimated FOH / Estimated Base

= 27600 / 47,500
= $ 5.81 /- units
(2) F-O-H applied rate = Estimated FOH / Estimated Base
= 27600 / 400,000 × 100
= 69 %
(3) F-O-H applied rate = Estimated FOH / Estimated Base
= 276000 / 28750
= $ 9.76 /- hr
(4) F-O-H applied rate = Estimated FOH / Estimated Base
= 267000 /276000 × 100
= 100 %
(5) F-O-H applied rate = Estimated FOH / Estimated Base
= 276000 / 23000
= $ 12 /- hr
E-4

Given Data of 19A

Normal capacity = 50,000 hrs

Actual capacity = 43,000 hrs

Given Data of 19 B

Estimated capacity = 40,000 hrs

Fixed FOH = $ 200,000

Variable FOH Rate = $ 6.69 /- hr

(1.a) F-O-H Rte = Fixed FOH Rate + Variable FOH Rate

= 4 + 6.69
= $ 10.69 /- hr
(Working)
Fixed FOH Rate = 200,000 / 50,000
=$4

(1.b) Fixed F-O-H Rate = Fixed F-O-H / Normal capacity

= 200,000 / 50,000

=$4

(1.c) Idle capacity variance:

Estimated F-O-H $ $

Fixed F-O-H 200,000

Variable F-O-H 287670 487670

Applied F-O-H 459670

Under applied unfavorable 28,000

(Working)

Variable F-O-H = 43,000 × 6.69

 = $ 287670

Applied F-O-H = 43,000 × 10.69

= $ 459.670

(2.a) F-O-H rate = Fixed F-O-H rate + Variable F-O-H rate

= 5 + 6.69

= $ 11.69 /- hr

E-5

(1) F-O-H applied = Actual capacity × F-O-H applied rate

= 105,000 × 2.55
= $ 267750
F-O-H applied rate = 255,000 / 100,000
= $ 2.55 /- hr
(2) Over or under applied F-O-H:
Actual F-O-H 270,000
Less: F-O-H applied 267750
Unfavorable / under applied 2250

E-6

Journal Entries

Date Particulars $ $

(1) W-I-P A/C 11,60,000

(29000×40) Material A/C
11,60,000
(Being Direct material used)

(2) W-I-P A/C 928000

(29000×32) Payroll A/C
928000
(Being direct labour cost incurred)
 (3) W-I-P A/C 551,000
F-O-H Applied A/C
551,000
(Being F-O-H applied to production)
(Working)
F-O-H Applied = 29000×19 = 551000
Applied Rate = 57000/30,000 = $ 19

(4) F-O-H A/C 559600

Voucher P/A
559600
(Being actual F-O-H cost)

(5) F-O-H Applied A/C 551000

F-O-H A/C
551000
(Being F-O-H applied all closed)

Over 0r under applied F-O-H

Actual F-O-H 559,600
Less:
Applied F-O-H 551,000
Unfavorable 8600

E-7

Spending Variance

Actual F-O-H 15500

Less:

Estimated F-O-H $

Fixed F-O-H 2500

Variable F-O-H 12000 14,500

Unfavorable 1000
(Working)

Variable F-O-H = Variable F-O-H Rate × Actual capacity

= 2.50 × 48000

=$ 12,000

Idle Capacity Variance

Estimated F-O-H 14500

Less:

Applied F-O-H 14400

Unfavorable 100

(Working)

Applied F-O-H = 4800 × 3 = 14400

F-O-H Applied rate

= Fixed F-O-H rate + Variable F-O-H rate

= 0.5 + 2.50 = $ 3 /- units

Fixed F-O-H rate = 2500 / 5000 = 0.5 /- units

Verification:

Capacity variance = Change in capacity × Fixed F-O-H rate

= 200 × 0.5

= 100 (+ve)
E-8

1) Applied F-O-H = Actual capacity × F-O-H rate

= 2700 × 2.57

= $ 6939

(Working)

F-O-H applied rate = (16920 + 75600) / 36000

= 92520 /36000

= 2.57 /- hr

2) Spending Variance:

Actual F-O-H 7959

Less:

Estimated F-O-H

Fixed F-O-H 1410

Variable F-O-H 5670 7080

Unfavorable 879

(Working)

Variable F-O-H = Actual capacity × Variable F-O-H rate

= 2700 × 2.10

= 5670

3) Idle capacity variable:

$
Estimated F-O-H 7080

Less:

Applied F-O-H 6939

Under applied / Unfavorable 141

Verification

Capacity variance = 300 × 0.47

= 141 (+ve)

E-9

1) Spending Variance:
$
Actual F-O-H 631000
Less:
Estimated F-O-H
Fixed F-O-H 400,000
Variable F-O-H 210,000 610,000
Unfavorable 21000
(Working)
Fixed F-O-H = Normal capacity × Fixed F-O-H rate
= 200,000 × (3 _1)
= 400,000
Variable F-O-H = 210,000 × 1 = 210,000
2) Idle Capacity Variance:
$
Estimated F-O-H 610,000
Less:
Applied F-O-H 630,000
Favorable (20,000)
(Working)
Applied F-O-H = 210,000 × 3
= 630,000
 Verification:
Capacity variance = (200,000 _ 210,000) × 2
= _ 20,000 (-ve)

3) Spending Variance
$
Actual F-O-H 435000
Less:
Estimated F-O-H
Fixed F-O-H 300,000
Variable F-O-H 140,000 440,000
Favorable 5000
(Working)
Variable F-O-H = Actual capacity × F-O-H variable rate
=140,000 × 1
= $ 140,000
4) Idle Capacity Variance:
Estimated F-O-H 440,000
Less:
Applied F-O-H 420,000
Unfavorable / under applied 20,000
Verification:
Total variance = _ 5000 + 20,000
15000 = 15000
Capacity Variance = 10,000 × 2 = $ 20,000

E-10
 1) Fixed F-O-H Rate:
= Estimated fixed F-O-H / Normal Capacity
= 300,000 / 150,000
= $ 2 /- hr
2) Variable F-O-H Rate:
= Estimated variable F-O-H / Normal capacity
= 150,000 / 150,000
= $ 1 /- hr
3) Under or Over applied F-O-H
$
Actual F-O-H 435,000
Less:
F-O-H applied 420,000
Under applied F-O-H 15000

(Working)
F-O-H Applied = Actual capacity × Applied rate
= 140,000 × (2+1)
= 140,000 × 3
= $ 420,000

E-11

Capacity variance = ($1266)

Spending Variance = $ 879

Applied F-O-H = $ 16,234

(1) Capacity variance = Estimated F-O-H -- Applied F-O-H

-- 1266 = x -- 16234
16234 -- 1266 = x
X = $ 14968
(2) Spending variance = Actual F-O-H -- estimated F-O-H
879 = x -- 14968
X = 14968 + 879 = $ 15847
 Problems:

P-1

1) Compute the variable overhead per unit for each factory over head expense.
Variable FOH Rate = Change in FOH expense/Change in production unit
a) Depreciation = 16000 -- 16000 / 5000
=0
b) Heat Light & Power = 8000 -- 6000 / 5000
= 0.4 / units
c) Supplies used = 10500 -- 7000 / 5000
= 0.7 / units
d) Indirect labour = 70,000 -- 60,000 / 5000
= 2 / units
e) Maintenance = 18000 -- 12000 / 5000
= 1.2 / units
f) Tax on factory building = 2000 -- 2000 / 5000
=0
2) Compute the fixed overhead for each FOH expense.
Fixed FOH = Budgeted FOH -- Variable FOH
So, Variable FOH = Variable FOH Rate × Actual capacity
a) Depreciation = 16000
b) Heat light expense
March October

= 6000 -- (1000×0.4) = 8000 -- (1500×0.4)

= 2000 = 4000

c) Supplies used
March October

= 7000 -- (1000×0.7) = 10500 -- (15000×0.7)

=0 = 3500
 d) Tax on factory building
March October
= 2000 = 2000
e) Indirect labour
March October
40,000 7000 -- (15000×2)
= 6000 -- (10000×2) = 7000 -- 30000
= 40000
f) Maintenance
March October
= 12000 -- (10000×1.2) 18000 -- (15000×1.2)
=0 =0

P-2

Predetermined FOH rate = 4.50 / Direct Labor hour.

1) Compute total cost of JOB 50

JOB 50
Opening WIP inventory = 54000
Add: Material 45000
Direct labour = 102000 / 85000 × 35000 = 42000
Factory overhead
= 3500 DL hours × 4.50 /- DL hours 15750
Total cost of JOB 50 156750
2) Determine F0H applied to job 52 in November
FOH Applied = DL hours × FOH Rate
= 2000 × 4.50
= 9000
3) Determine FOH cost applied in November
FOH Applied =Total DL hours × FOH Rate
= 8500 × 4.50
= 38250
4) Determine actual FOH incurred
Indirect labour wages = 15000
Supervisory salaries = 6000
Building occupancy cost = 3500
 Factory equipment = 6000
Other factory costs = 5000
Actual FOH = 35500
5) Over applied / under applied FOH
Actual FOH = 35500
Applied FOH = 38250
Over applied = 2700

P-3 Find The Missing Figures.

A. Given Data:
Actual F0H: 30000, Applied FOH: 29000, Budgeting FOH: 32000, Spending variance =?
Idle capacity variance.
Spending variance = Budgeted FOH -- Actual FOH
= 32000 -- 30,000
= 2000 Favorable _ve, Cr
Idle capacity variance = Budgeted FOH -- Applied FOH
= 32000 -- 29000
= 3000 Unfavorable, +ve, Dr

B. Given Data:
Applied FOH = 15000, Spending variance = 1000, Idle capacity variance = 7000, Actual
FOH =? Budgeted FOH=?
Spending variance = Budgeted FOH -- Actual FOH OR
Actual FOH -- Budgeted FOH
+ 1000 = x -- 22000
X = 23000
Idle capacity variance = Budgeted FOH -- Applied FOH
+ 7000 = Budgeted FOH -- 15000
Budgeted FOH = 7000 + 15000
= 22000

C. Given Data
Actual FOH = 24000, Applied FOH = 24000, Budgeted FOH? Spending variance = 6000,
Idle capacity variance?
Spending variance = Budgeted FOH -- Actual FOH
 (6000) = Budgeted FOH -- 24000
Budgeted FOH = 24000 + 6000
= 30,000
Idle capacity variance = Budgeted FOH -- Applied FOH
6000 = 30,000 -- 24000
D. Given Data:
Budgeted FOH = 18000, Spending variance = 1000, Idle capacity = 2000, Applied FOH
=? Actual FOH =?
Spending variance = Actual FOH -- Budgeted FOH
1000 = Actual FOH -- 18000
Actual Budgeted FOH = 10,000
Idle capacity variance = Applied FOH -- Budgeted FOH
2000 = Applied FOH -- 18000
Applied FOH = 20,000

E. Given Data:
Actual FOH = 18000, Applied FOH = 20,000, Spending variance = 3000, Budgeted FOH
=? Idle capacity =?
Spending variance = Actual FOH -- Budgeted FOH
3000 = 18000 -- Budgeted FOH
Budgeted FOH = 15000
Idle capacity = Budgeted FOH -- Applied FOH
Idle capacity = 15000 -- 20000
Idle capacity = -- 5000
F. Given Data:
Actual FOH = 27000, Applied FOH =? Budgeted FOH =? Spending variance = 6000, Idle
capacity variance = 2000
Spending variance = Actual FOH -- Budgeted FOH
-- 6000 = 27000 -- Budgeted FOH
Budgeted FOH = 33000
Idle capacity variance = Applied FOH -- Budgeted FOH
-- 2000 = Applied FOH -- 33000
Applied FOH = 35000
G.
H. Given Data:
Actual FOH = 16000, Applied FOH = 16000, Spending variance = 0 =, Budgeted FOH =?
Idle capacity variance =?
Spending variance = Actual FOH -- Budgeted FOH
 0 = 16000 -- Budgeted FOH
Budgeted FOH = 16000
Idle capacity variance = Budgeted FOH -- Applied FOH
Idle capacity variance = 16000 -- 16000
=0

P-4 see 8e

P-5

1) Compute the pre determined FOH rate based on normal capacity.

FOH Rate on normal capacity = Estimated FOH+ Estimated base
= Fixed FOH + Variable FOH / Normal capacity
= 18000 + 39000 / 60,000
= 0.95 /- hours
Variable expected capacity expense = 29250
Variable FOH rate at expected capacity
= Variable expected expenses / Expected capacity
= 29250 / 45000
= 0.65
Variable FOH estimated = Normal capacity × Variable FOH rate
= 60,000 × 0.65
= 39000

2) Compute the predetermined FOH rate on expected actual capacity.

FOH rate at expected capacity = Expected FOH / Expected base
= 29250 + 18000 / 45000
= 1.05 /- hours

3) Compute the amount of FOH applied at normal capacity.

FOH Applied = FOH rate × Actual capacity
= 0.95 × 47000
= 44650

4) Compute amount of FOH applied at expected actual capacity.

FOH applied = Rate × Actual capacity
= 1.05 × 47000
= 49350
 5) Compute idle capacity variance by variance computation.
Idle capacity variance:
Budgeted FOH 48550
Applied FOH 44650
Unfavorable 3900
Estimated FOH = Fixed FOH + Variance FOH
= 18000 + (Variable FOH rate × Actual capacity)
= 18000 + (47000 × 0.65)
= 18000 + 30550
= 48550

6) Compute idle capacity variance by variance computation.

Idle capacity variance:
Budgeted FOH 48550
Applied FOH 49350
Favorable 8000

7) Difference in amount between spending variance at normal capacity & actual capacity.
Spending variance at normal capacity:
Budgeted FOH 48550
Actual FOH 49400
Unfavorable 850
Spending variance at expected capacity:
Budgeted FOH 48550
Actual FOH 49400
Unfavorable 850

P-6 Compute variable analyses for each of three months.

Given Data:

June

Idle capacity variance = (8000)

Spending variance =0

Actual FOH = 9000

Actual capacity = 700 output

As spending variance is 0, so, Actual FOH = Estimated FOH

9000 = 9000

July

Idle capacity variance =0

Spending variance = 500

Actual FOH = 7500

Actual capacity = 500 output

As idle capacity is 0, so, Normal capacity = Actual capacity

500 = 500

August

Actual FOH = 5900

Actual capacity = 400 output

Estimated budgeted FOH = 6000

High & Low point

 JUNE JULY

High Low

Estimated FOH 9000 7500

Actual capacity 7000 500

Variable FOH = Estimated FOH at high point -- Estimated FOH at low point /Capacity at high
point -- Capacity at low point

= 9000 -- 7500 / 700 -- 500

= 7.5 /- output

Variable FOH = Normal capacity × Variable FOH rate

= 500 × 100

= 5000

Estimated FOH in

June:

Estimated FOH = Actual FOH

9000 = 9000

July:

Estimated FOH = 7000

Actual FOH = 7500

Unfavorable = 500

August:

Estimated FOH = 6000

In July normal capacity is known, so, estimated FOH can be taken from July because estimated
FOH is based on normal capacity.

Estimated FOH = Fixed FOH + Variable FOH

7000 = x + 5000
 X = 2000

FOH Applied rate = Estimated FOH / Estimated base

On unknown normal capacity = 7000 / 500

= 14 /- output

Under or over applied FOH for

June:

Actual FOH 9000

Applied FOH 9800

(Actual capacity × Applied rate)

(700 × 14)

Over applied 800

July:

Actual FOH 7500

Applied FOH 7000

(Actual capacity × Applied rate)

(500 × 14)

Under applied 500

August:

Actual FOH 5900

Applied FOH 5600

(Actual capacity × Applied rate)

(400 × 14)

Under applied 300

Variance analysis, for

June:

Spending variance

Budgeted FOH

Fixed FOH 2000

Variable FOH 7000 9000

(Actual capacity × Variable rate) 9000

(700 × 10)

Actual FOH 9000

Idle capacity variance

Budgeted FOH 9000

Applied FOH 9800

Favorable 800

July:

Spending variance

Budgeted FOH

Fixed FOH 2000

Variable FOH 5000 7000

(Actual capacity × Variable rate) 7000

(500 × 10)

Actual FOH 7500

Unfavorable 500
 Idle capacity variance

Budgeted FOH 7000

Applied FOH 7000

August:

Spending variance

Budgeted FOH

Fixed FOH 2000

Variable FOH 400 6000

(Actual capacity × Variable rate) 6000

(400 × 10)

Actual FOH 5900

Favorable 100

Idle capacity variance

Budgeted FOH 6000

Applied FOH 5600

(Actual capacity × FOH rate)

(400 × 14)

600

P-7
 Given Data

July:

Idle capacity 800

Spending variance 0

Actual FOH 5600

Actual capacity 600 tons

As spending variance is 0, so, actual FOH & estimated FOH is equal

5600 = 5600

June:

Idle capacity 0

Spending variance 600

Actual FOH 7000

Actual capacity 800 tons

Normal capacity = Actual capacity due to idle capacity

August:

Actual FOH 7100

Actual capacity 900

High & Low point

JULY AUGUST

High Low

Estimated FOH 6400 800

Actual Capacity 5600 600

Variable FOH rate = High estimated FOH -- Low estimated FOH / High actual capacity -- Low
actual capacity

= 6400 -- 5600 / 800 -- 600

 = 4 /- tons

Estimated FOH in

June:

Estimated FOH 6400

Actual FOH 7000

Spending variance = 600

July:

Estimated FOH = Actual FOH

5600 = 5600

August:

(Working)

Estimated FOH = Fixed FOH + Variable FOH

= 3200 + 3200

= 6400

(Working)

Variable FOH = Variable FOH rate × Normal capacity

= 4 × 800

= 3200

Estimated FOH is taken from June because of normal capacity so,

Estimated FOH = 6400

_ Variable FOH = 3200

 Fixed FOH 3200

FOH applied rate on known capacity = Estimated FOH / Estimate base

= 6400 / 800

= 8 /- tons

Under / over applied FOH

June:

Actual FOH 7000

Applied FOH 6400

(Actual capacity × FOH Rate)

(800 × 8)

Under applied 800

July:

Actual FOH 5600

Applied FOH 4800

(Actual capacity × FOH Rate)

(600 × 8)

Under applied 800

August:

Actual FOH 7100

Applied FOH 7200

 (Actual capacity × FOH Rate)

(900 × 8)

Over applied 100

June:

Spending variance

Budgeted FOH

Fixed FOH 3200

Variable FOH 3200

(Variable rate × Actual capacity) 6400

(4 × 800)

Actual FOH 7000

Unfavorable 600

Idle capacity variance

Budgeted FOH 6400

Applied FOH 6400

July:

Spending variance

Budgeted FOH
Fixed FOH 3200

Variable FOH 2400 5600

(Variable rate × Actual capacity) 5600

(4 × 600)

Actual FOH 5600

Idle capacity variance

Budgeted FOH 5600

Applied FOH 4800

Unfavorable 800

August:

Spending variance

Budgeted FOH

Fixed FOH 3200

Variable FOH 3600 6800

(Variable rate × Actual capacity) 6800

(4 × 900)

Actual FOH 7100

Unfavorable 300

Idle capacity variance

Budgeted FOH 6800

Applied FOH 7200

Favorable 400